Great, I’ll prepare a comprehensive research report on U.S. tariff and income tax policy from 1850 to 1950. I’ll focus on major tariff policy shifts and their economic impact, especially on domestic fiscal outcomes. The report will analyze the transition from tariffs as a primary revenue source to the introduction and expansion of the income tax, including relevant legislation and fiscal consequences. I’ll include charts and tables comparing tariff and income tax revenues where data is available.I’ll let you know as soon as the report is ready for your review.

Tariffs and Income Tax in U.S. Fiscal History (1850–1950)

In the mid-19th century, the United States federal government was financed primarily by tariffs (customs duties on imports). In fact, before the advent of an income tax, tariffs provided as much as 80–95% of federal revenueen.wikipedia.orgen.wikipedia.org. Over the next hundred years, this reliance on tariffs would wane dramatically. By 1950, income taxes had far surpassed tariffs as the chief source of federal funds, and tariffs contributed only a trivial share. This report chronicles that transformation, examining key tariff acts and the political context, and how the decline of tariff revenue led to the introduction of the income tax.

Figure: Tariff vs. Income Tax share of U.S. federal revenue over time (1850–1950). Tariffs (yellow) provided the bulk of federal funds in the 19th century, but income taxes (orange) rose sharply after 1913, eclipsing tariff revenueen.wikipedia.orgen.wikipedia.org.

Tariffs as the Primary Revenue Source (1850–1900)

From 1850 up until the early 20th century, tariffs were the dominant source of federal income. Tariff rates and revenues fluctuated with political changes, but until the 1910s the federal government was largely financed by import dutiesen.wikipedia.org. In the 1850s, tariff policy leaned toward lower rates (for example, the Tariff of 1857 reduced many rates), reflecting a national sentiment for cheap imports. Even at these lower rates, however, tariffs generated the lion’s share of federal revenue (on the eve of the Civil War, tariffs were about 80–90% of receipts)en.wikipedia.org. The government at this time had modest fiscal needs and did not levy direct taxes on citizens. This political equilibrium, however, was upended by the Civil War in 1861.

The Morrill Tariff of 1861 marked a turning point. Enacted just after several Southern states seceded (which removed many low-tariff advocates from Congress), the Morrill Tariff sharply increased import duties. It was passed by the new Republican majority and signed by President Buchanan in March 1861en.wikipedia.org. The average tariff rate roughly doubled, reaching around 40% on many itemslibrary.fiveable.me. This high tariff was designed both to protect emerging Northern industries and to raise revenue for the Union war effort. Indeed, as the Civil War escalated, tariffs were raised repeatedly to fund the war, alongside new excise taxes and even the nation’s first income taxwww.everycrsreport.comen.wikipedia.org. Despite these hikes, tariff revenue alone was not enough to meet wartime expenditures. The Union government had to resort to massive borrowing (issuing bonds) to finance the war, as total tax revenues still fell short of expensesen.wikipedia.org. By 1865, tariffs contributed only part of the Union’s wartime revenue – the remainder came from new internal taxes and loans. (For example, in fiscal 1865 internal taxes like excise and the temporary income tax far exceeded customs receiptsen.wikipedia.org.) In short, the Civil War forced the U.S. to broaden its tax base beyond tariffs for the first time in its history.

After the Civil War, most internal taxes were repealed or allowed to expire, but high tariffs remained. Congress ended the temporary wartime income tax in 1872, reflecting a return to reliance on tariffs and a political aversion to direct taxation. From the late 1860s through the 1880s, tariff rates stayed elevated, generally in the range of 30–50% on dutiable goods, providing roughly half of federal revenue on averagewww.everycrsreport.com. The other major source was excise taxes on domestic goods (notably whiskey and tobacco) which the government had retained after the war and which made up the balance of revenuewww.everycrsreport.com. During this era, tariffs not only protected burgeoning American industries but also produced more revenue than the government could easily spend, leading to frequent budget surpluses. By the 1880s the federal Treasury was running large surpluses, sparking political debates on whether to reduce tariff rates. President Grover Cleveland, in his famous 1887 address to Congress, argued that the high tariff was feeding an unneeded surplus and that excess revenue should be lowered by cutting tariff rates. This stance made tariff reform a central issue of the 1888 election.

Several major tariff acts punctuated the late 19th-century debate. The Tariff Act of 1883 (sometimes called the “Mongrel Tariff”) made only modest reductions to rates, failing to resolve the surplus. Next, the McKinley Tariff of 1890 (enacted under Republican leadership) reversed course and raised tariffs to historically high levels – nearly 50% on average for dutiable goodsen.wikipedia.org. While intended to protect industry, the McKinley Tariff’s steep rates had an interesting fiscal side effect: by making some imports prohibitively expensive, it actually caused import revenue to drop as import volumes fell. Indeed, in the years after 1890, customs revenue declined even with higher rates, and the federal surplus turned into deficits by 1894. Public backlash against the high prices of the McKinley duties helped Democrats win control of Congress and the White House in 1892.

In 1894 the new Democratic majority passed the Wilson-Gorman Tariff Act. This law reduced tariff rates somewhat (cutting average duties from about 49% to 41%) and, significantly, included a provision for a modest federal income tax (a 2% tax on incomes over $4,000)www.reaganlibrary.gov. The inclusion of an income tax was driven by populist and agrarian demands to shift some burden of federal finance off consumers (who paid hidden tariffs in prices) and onto wealthy individuals. Although the Wilson-Gorman Tariff trimmed the highest tariffs, it was only a partial reform – many protective duties remained quite high. Crucially, its income tax was soon struck down by the Supreme Court. In 1895, the Court’s Pollock decision declared the income tax unconstitutional (as a direct tax not apportioned among the states), nullifying this first peacetime attempt at taxing incomes. The federal government thus remained dependent on tariffs (and excise taxes) for revenue at the close of the 19th century, absent a functioning income tax.

By 1900, the pattern was clear: tariffs supplied the bulk of federal revenue, and any shortfall or desire for progressivity led to calls for an income tax. The Dingley Tariff of 1897, passed by Republicans after the Wilson-Gorman experiment, raised rates to their highest levels in U.S. history up to that point (duties on woolens, linens, and other goods often exceeding 50%). The Dingley duties coincided with a surge in imports during a time of economic growth, yielding ample revenue. Federal income from tariffs around the turn of the century was substantial – for example, in 1900, customs revenue was about $233 million (with$n295 million from excise taxes), comprising essentially all federal receiptswww.everycrsreport.com. The government had no need (and no constitutional authority) to tax individual incomes at that time. However, the turn of the century brought new political pressures that would soon upend this tariff-centric system.

The Path to the Income Tax (1900–1913)

By the early 1900s, sentiment was growing to reform the federal tax structure. Progressive-era politicians pointed out that tariffs, as consumption taxes, were regressive – burdening the poor and middle class by raising prices, while the wealthy paid relatively little. There was also a recognition that tying government revenue solely to import duties had drawbacks: revenue could swing with the business cycle or trade flows, and extremely high tariffs were politically contentious and economically suspect. Reformers pushed for an income tax to create a more balanced and equitable system.President Theodore Roosevelt and later William Howard Taft both expressed openness to an income tax, and many populist and progressive leaders (such as William Jennings Bryan) made it a cause. Still, conservative Republicans resisted, preferring to maintain protective tariffs. The intra-party split came to a head with the Payne-Aldrich Tariff Act of 1909. Taft had called a special session of Congress to lower tariffs (responding to public outcry over high duties), but the bill was so heavily amended by protectionists (led by Senator Nelson Aldrich) that it did little to reduce ratesen.wikipedia.org. The Payne-Aldrich Tariff infuriated progressive Republicans and the public, contributing to a political backlash against Taft. Importantly, as a compromise in 1909, Taft and congressional leaders also approved a corporate excise tax (effectively a tax on corporate income) and proposed a constitutional amendment to enable a federal income taxwww.everycrsreport.com. This was a pivotal development. By 1909, even conservative leaders conceded that a constitutional amendment was the only way to definitively legalize an income tax (after the 1895 Pollock ruling). Taft endorsed the amendment thinking it might defuse the issue (some believed the states would never ratify it), but the political momentum for tax reform was strong.

The result was the Sixteenth Amendment. Passed by Congress in 1909 and sent to the states, it was ratified in February 1913. This amendment granted Congress the clear power to levy income taxes without apportionment among the stateswww.everycrsreport.com. The timing was fortuitous for the Democratic Party: Woodrow Wilson had just won the 1912 election (partly due to the Republican split), giving Democrats unified control of government for the first time in decades. They moved quickly on tariff and tax reform.

Later in 1913, Congress passed the Underwood-Simmons Tariff Act (championed by Representative Oscar Underwood and Senator Furnifold Simmons, and strongly backed by President Wilson). The Underwood Tariff of 1913 drastically lowered tariff rates, cutting average duties from the high levels maintained since the Civil War. Duties on many items were reduced or eliminated; the average ad valorem tariff on dutiable goods fell from about 40% to 26%en.wikipedia.org. This law was designed to reduce prices for consumers and farmers by promoting cheaper imports. To compensate for the loss of revenue, the Underwood Act simultaneously implemented a new federal income tax under the freshly ratified Sixteenth Amendment. The 1913 income tax imposed a 1% tax on net incomes above $3,000 (for a married couple) with surtaxes reaching 6$n500,000)www.everycrsreport.com. In effect, the United States now had a permanent income tax, and the federal government deliberately accepted lower tariff revenues in exchange for this new source of fundsen.wikipedia.org.

Initially, the fiscal impact of the income tax was modest. In the first full year of the income tax (1914), only the top few percent of households had to pay it (around 2% of U.S. families)www.everycrsreport.com. Tariffs and excise taxes still generated the majority of federal revenue in 1914–1916www.everycrsreport.com. However, the structural shift had begun: tariff rates were at their lowest in decades, and a framework was in place to tax incomes. When World War I broke out in 1914, U.S. trade patterns and revenues were disrupted, but it soon became clear that the income tax could be scaled up dramatically if neededen.wikipedia.org. The stage was set for a profound change in the federal revenue system.

World War I and Fiscal Transformation (1914–1918)

World War I proved to be the catalyst that demonstrated the income tax’s potential. The U.S. entered the war in 1917, and military expenditures skyrocketed. Tariff revenue, meanwhile, actually fell during the war – global trade was disrupted by the conflict and U-boat threats, and the Wilson administration kept import duties low to encourage international commerce and goodwill. In fact, trade volumes shrank during WWI, and tariff receipts dropped accordinglywww.everycrsreport.com. Had the government still been reliant solely on tariffs, it would have faced a fiscal crisis. But with the Sixteenth Amendment in place, Congress turned overwhelmingly to income and other internal taxes to fund the war.

Between 1916 and 1918, a series of Revenue Acts massively expanded the income tax. Tax rates were raised repeatedly: by 1918 the bottom rate was 6% and the top marginal rate reached 77% on incomes over 1 million[everycrsreport.com](https://www.everycrsreport.com/reports/RL33665.html#:~:text=The%20Era%20of%20the%20Income,personal%20exemptions%20and%20certain%20deductions). The tax base was broadened by lowering exemption thresholds, bringing in many middle-class taxpayers for the first time. **Corporations faced an excess profits tax**, and new taxes were levied on estates and luxury items[everycrsreport.com](https://www.everycrsreport.com/reports/RL33665.html#:~:text=taxes,a%20progressive%20inheritance%20tax%2C%20and)[everycrsreport.com](https://www.everycrsreport.com/reports/RL33665.html#:~:text=CRS,Total%20federal%20revenue). The effect was dramatic. **Federal revenue leapt fivefold from 1917 to 1919**, and by 1918 **income taxes (including corporate) and other internal taxes supplied about 88% of federal revenue**, while tariffs provided only about 12%[everycrsreport.com](https://www.everycrsreport.com/reports/RL33665.html#:~:text=War%20I,Total%20federal%20revenue). In dollar terms, customs revenue was roughly n180 million in 1918, dwarfed by over $2.8 billion from income taxes that yearwww.everycrsreport.comwww.everycrsreport.com. The federal fiscal structure had flipped – tariffs became almost an afterthought in financing the government.

It is important to note that despite greatly increased tax collections, the war was so costly that the government ran deficits and borrowed heavily (through Liberty Bonds). Still, the new income tax proved indispensable in mobilizing domestic wealth for war. As one historian observed, World War I “institutionalized a new tax regime,” normalizing a much larger federal role in taxing and spendingwww.everycrsreport.comwww.everycrsreport.com. By war’s end, it was accepted that the income tax was the primary federal revenue tool, and high tariffs were no longer necessary for funding (though they could still be used for protectionist purposes).

Interwar Policy: Tariffs Return, but Income Tax Reigns (1920s)

After World War I, the political pendulum swung back. The 1920s brought Republican administrations (Harding, Coolidge, Hoover) that were more protective of business and inclined to cut taxes. Income tax rates on the wealthy were slashed in the Revenue Acts of the early 1920s (the top rate fell from 77% to 25% by 1925), and the excess profits tax was repealedwww.everycrsreport.com. At the same time, Republicans moved to raise tariffs again to shield domestic industry from foreign competition. The Emergency Tariff of 1921 and more permanently the Fordney–McCumber Tariff of 1922 restored high import duties on agricultural products and manufactured goodsen.wikipedia.org. By the mid-1920s, tariff rates were back up roughly to pre-1913 levels on many items.

However, the context had fundamentally changed: the federal government’s revenue needs were now largely met by income taxes, even at lower rates, due to the vastly expanded tax base after WWI. Tariff revenue in the 1920s was a much smaller fraction of the total budget than it had been in the 19th century. For example, in 1925 the federal government collected about $546 million in customs duties vs.$n1.76 billion in income taxeswww.everycrsreport.comwww.everycrsreport.com. As a share of federal receipts, tariffs made up only around 10% in the mid-1920s, while income taxes (individual and corporate combined) were well over half. The remainder came from excise taxes (on things like alcohol, tobacco, and automobiles) and new sources like estate taxes. The 1920s were a decade of budget surpluses; the government actually paid down much of its WWI debt, thanks in part to robust income tax collections during prosperitywww.everycrsreport.comwww.everycrsreport.com.

One illustration of this new balance can be seen by comparing the pre- and post-war revenue mix. In 1910, on the eve of the income tax, the U.S. took in about $334 million from tariffs and essentially$n0 from income tax (aside from a small corporate excise)www.everycrsreport.com. A decade later in 1920, despite tariffs remaining high, customs revenue was $323 million, whereas **income tax revenue (individual and corporate) soared to nearly$n4.0 billion**www.everycrsreport.com. Tariffs had fallen to under 6% of federal revenue by 1920, while income taxes provided over 70%. Clearly, the income tax had become the financial backbone of the federal government, even as the 1920s tariff policies reintroduced protectionism for economic (rather than revenue) reasons.

The Great Depression and the Smoot–Hawley Tariff (1930s)

The onset of the Great Depression in 1929 brought new fiscal challenges and policy responses. With the economy contracting, federal revenue from all sources plummeted. Income tax receipts fell sharply as profits and incomes declined, and tariff revenue also dropped as international trade collapsed. In 1930, in the depths of the downturn, President Herbert Hoover signed the infamous Smoot–Hawley Tariff Act – the highest tariff in U.S. history, with average duties around 60% on many imports. Smoot–Hawley was intended to protect American farmers and manufacturers from foreign competition during the crisis. From a fiscal perspective, one might have expected higher rates to bolster customs revenue. In practice, it did the opposite. Other nations retaliated with their own tariffs, world trade contracted further, and U.S. imports (and exports) nosediveden.wikipedia.orgen.wikipedia.org. The volume of dutiable imports fell so much that tariff revenue actually decreased during the early 1930s. For example, the Treasury collected about $587 million in tariffs in 1930, but only$n328 million by 1932 as trade dried upwww.everycrsreport.comwww.everycrsreport.com. Tariff receipts, which had been already small, became even more inconsequential in the federal budget.

As the Depression worsened and federal deficits grew, the Hoover administration reversed course on taxes. In 1932, Congress enacted a large tax increase (the Revenue Act of 1932), hiking income tax rates (the top rate rose from 25% to 63%) and adding new excise taxeswww.everycrsreport.comwww.everycrsreport.com. This contractionary policy aimed to reduce the deficit caused by falling revenues, though it arguably deepened the recession. Despite the tax hikes, income tax revenue continued to decline until the economy hit bottom in 1933–34www.everycrsreport.com. Franklin D. Roosevelt’s New Deal, beginning in 1933, did not immediately alter tariff policy (aside from the Reciprocal Trade Agreements Act of 1934, which gradually lowered some trade barriers through negotiation). Instead, FDR focused on using fiscal policy and monetary reforms to spur recovery. The repeal of Prohibition in 1933 allowed the federal government to collect excise taxes on alcohol again, providing a welcome source of revenue that had been lost during the dry yearswww.everycrsreport.com.

By the mid-1930s, the relative insignificance of tariffs to the Treasury was evident. Federal revenue started to recover with the economy after 1933, largely thanks to rising income tax receipts and new taxes introduced by New Deal programs. The Social Security Act of 1935 created payroll taxes on workers and employers to fund old-age pensions, marking another structural addition to federal revenue streamswww.everycrsreport.com. Tariffs, in contrast, were yielding little. As one account notes, by 1936 the tariff issue had faded from politics, and the revenue it raised was smallen.wikipedia.org.

Indeed, looking at 1935, the government collected about $343 million in tariffs versus over$n1 billion in income taxes (even in the depressed economy)www.everycrsreport.comwww.everycrsreport.com. That was roughly 10% of receipts from tariffs vs 31% from income taxeswww.everycrsreport.comwww.everycrsreport.com. The rest came from excises and the new payroll taxes. The Smoot–Hawley Tariff, while economically significant, had minimal impact on improving federal finances during the Depression – it may have even hurt them by choking off trade. By the late 1930s, with recovery underway, the federal government was preparing for another possible conflict, and its fiscal attention was on internal taxes, not import duties.

World War II and the Dominance of the Income Tax (1940s)

World War II completed the fiscal revolution that the Civil War and World War I had begun. As the U.S. geared up for WWII in the early 1940s, government spending and revenue needs reached unprecedented heights. Once again, tariffs played virtually no role in financing the war – partly because the U.S. had adopted a more liberal trade posture (encouraging allies through Lend-Lease rather than restricting trade)en.wikipedia.org, and partly because even sky-high tariffs could never have generated the magnitude of revenue required. Instead, the war was funded by massive increases in income taxes and other internal taxes, alongside war bond borrowing.

During WWII, the federal income tax was transformed from a “class tax” into a mass tax. The Revenue Acts of 1940, 1941, and especially 1942 broadened the income tax base to tens of millions of Americans. By 1945, the number of federal income taxpayers had ballooned to 42.6 million, up from 17 million in 1941www.everycrsreport.com. Payroll withholding was introduced in 1943 to facilitate collection. Tax rates were hiked across the board: the bottom rate rose to 20% and the top rate to 94% on incomes over $200,000. **Corporate tax rates** also went up significantly, and excess profits taxes returned for the duration of the war. The result was an explosion of revenue. In fiscal 1945, U.S. tax receipts hit$n45 billion (about 19% of GDP), compared to just $7 billion (5.7$n341 million, which was less than 0.8% of total federal receiptsen.wikipedia.org. Tariffs had become a footnote in federal finance.

After World War II, the high wartime tax rates were slightly reduced but the income tax remained central to federal budgeting. In 1950, on the eve of the Korean War, federal revenue was about $39 billion (roughly 14$n407 million, a negligible amount next to the $26.2 billion brought in by income taxes that yearwww.everycrsreport.com. The Sixteenth Amendment and subsequent policy choices had thus fundamentally altered the nation’s fiscal foundation. The U.S. was now financed by the incomes and payrolls of its citizens, not by taxes on foreign goods.

Conclusion: From Tariff Surpluses to Income Tax State

Between 1850 and 1950, the United States transitioned from a federal revenue system based on import duties to one based on direct taxes on income. Tariffs had helped accumulate national wealth in the 19th century by funding the government and even generating surpluses that paid down debten.wikipedia.org. They also nurtured American industries behind protective walls. However, as the country’s economy and governance evolved, the limitations of tariffs became evident. High tariff rates could stifle trade and still failed to produce sufficient revenue during crises. The eventual decline of tariff revenue – whether through deliberate policy cuts (Underwood 1913) or economic collapse (1930s) – made the adoption of an income tax imperative. The income tax provided a more elastic and fair revenue source, growing with national income and ability to pay. The implementation of the Sixteenth Amendment in 1913 was a direct response to the need for a stable revenue stream to support a modern industrial nation with expanding responsibilities.

Table 1 below highlights the seismic shift in U.S. federal revenue sources over this century. In 1860, on the eve of the Civil War, tariffs provided nearly all federal revenue. By 1910, on the cusp of the income tax, tariffs still dominated, though augmented by excise taxes (income tax was virtually nil). Just a decade later, after the Underwood Tariff and World War I, the situation reversed – income taxes were delivering the majority of revenue. By 1950, the transformation was complete: tariffs were a mere sliver of receipts, and the federal government’s fiscal operations were firmly founded on income and payroll taxes.

In summary, the period 1850–1950 saw U.S. tariff policy move through high-water marks (Morrill, McKinley, Smoot–Hawley) and low ebbs (Underwood), always shadowed by the question of how to fund the government. The introduction of the income tax via the 16th Amendment emerged directly from the waning practicality of tariffs as the sole fiscal pillar. By 1950, the American federal tax state had been fundamentally restructured: national wealth accumulation and government finance no longer depended on taxing imported goods, but on taxing incomes. The legacy of this century’s transformation is a federal revenue system that endures to this day – one where tariffs are a footnote and the income tax is indispensable.Sources:

• Congressional Research Service – U.S. Federal Government Revenues: 1790 to the Presentwww.everycrsreport.comwww.everycrsreport.comwww.everycrsreport.com.

• Wikipedia – History of Tariffs in the United Statesen.wikipedia.orgen.wikipedia.orgen.wikipedia.org.

• Wikipedia – History of Taxation in the United Statesen.wikipedia.org.

• U.S. Treasury Historical Tables (via EveryCRSReport data)www.everycrsreport.comwww.everycrsreport.com.

• Blakey & Blakey – The Federal Income Tax (1940), p. 43www.everycrsreport.com.

• Brownlee – Federal Taxation in America: A Short History (Cambridge Univ. Press, 1996)www.everycrsreport.com.

• U.S. National Archives – 16th Amendment to the U.S. Constitution (1913)www.everycrsreport.com.